Shell Is Definitely Not Giving up on Natural Gas

Like ExxonMobil, Royal Dutch Shell jumped on natural gas early in the United States—that's been a drag since the commodity's price has fallen here, but it isn't stopping Shell from continuing to build its global natural gas empire.

Jan 7, 2014 at 1:02PM

U.S. natural gas is largely isolated from the rest of the world. That's why the huge influx of the commodity from shale drilling has pushed prices toward historical lows. The rest of the world, however, isn't awash in cheap natural gas. And that's why Royal Dutch Shell (NYSE:RDS-B) is still building its global position in the space despite its U.S. woes.

Too early
Shell and ExxonMobil (NYSE:XOM) both jumped into the U.S. natural gas market early on when gas prices were relatively high. Exxon, for example, made big headlines when it bought XTO Energy for $40 billion, the timing of which CEO Rex Tillerson later described as being "off a year or two." The big drop in natural gas prices after a peak in 2008 shows exactly why.


However, these two giants weren't the only ones caught up in the buying spree. For example Ultra Petroleum's (NYSE:UPL) 2012 10k notes that "As a result of low gas prices during 2012, we were required to record a $2.9 billion non-cash, ceiling test writedown of the carrying value of our oil and gas properties." That left the company with a share net loss of over $14 that year.

You could argue that it was even worse for Chesapeake Energy (NYSE:CHK) where using debt to buy land quickly turned into a big liability. And it cost the company's co-founder his CEO job after Carl Icahn got involved with the company. That said, both Ultra and Chesapeake are low-cost drillers and were profitable in each of the first three quarters of 2013. So despite their bad timing, they are worth a look for investors despite low gas prices.

Continuing to grow
In fact, Matthias Bichsel, projects and technology director at Shell, lays out the issue quite well: "We have some areas that are simply not as good as others." He believes this same statement will prove true of drilling efforts around the world, too. Because not every property is created equal, Shell has been shedding some U.S. assets to focus on its best plays instead of trying to make everything work.

That's been a drag on results, but, unlike Ultra and Chesapeake, Shell doesn't focus on just the U.S. market. Natural gas is more expensive in other countries and Shell is thinking long term. That's the same reason why Exxon is sticking it out despite mistiming its splashy XTO buy.

The best example of this is probably Shell's $6.7 billion purchase of liquefied natural gas assets from Repsol (NASDAQOTH:REPYY). The deal augments Shell's position in the global trade of natural gas. Clearly, despite the troubles in the U.S. gas drilling arena, Shell is a natural gas believer. And it has the financial strength to back up its convictions.

It's important to note that Repsol hasn't exactly changed its mind with regard to natural gas. The Spanish company has been under financial stress since Argentina seized its YPF business in early 2012. Repsol and Argentina have been fighting over compensation—and it looks like all Repsol is likely to get are government IOUs. So raising some cash to solidify its finances via the Shell sale was something of a necessity.

Looking beyond U.S. borders
Chesapeake and Ultra are good companies, but Shell and Exxon have a global scale. Moreover, this pair of industry giants has deeper pockets. These two factors allow them to take advantage of natural gas trends around the world. And while low U.S. prices have been a drag, that's not stopping them from sticking out their commitment to the fuel.

Shell's purchase from Repsol is proof of this and gives the company an important position in South America. With an around 5.3% yield, Shell is a great way to play the global trends in natural gas—if, like this international energy giant, you can see beyond low U.S. natural gas prices.

Why should OPEC be worried about this company?
Imagine a company that rents a very specific and valuable piece of machinery for $41,000... per hour (that's almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report reveals the company we're calling OPEC's Worst Nightmare. Just click HERE to uncover the name of this industry-leading stock... and join Buffett in his quest for a veritable LANDSLIDE of profits!


Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Ultra Petroleum. The Motley Fool owns shares of Ultra Petroleum and has the following options: long January 2014 $30 calls on Ultra Petroleum, long January 2014 $40 calls on Ultra Petroleum, and long January 2014 $50 calls on Ultra Petroleum. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers